Client Budgets Drive Vendor M&A

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Tighter capital and operation budgets on the buy and sell sides are leading to mergers and acquisitions among fintech vendors as firms prefer dealing with fewer large strategic partners over several point-solution providers.

Jennifer Nayar, Vela Trading Technologies

“Many banks do not want to maintain teams of engineers, infrastructure people, hardware, networks and those sorts of things,” Jennifer Nayar, CEO of Vela Trading Technologies told Markets Media. “It is becoming much more of an attractive return-on-investment to outsource that to a partner and fund it like a service.”

Smaller tier-two and tier-three players also are turning to service-based offering to lower their costs, which enables them to participate in markets to which they would not be able to access if they needed to maintain their infrastructure, she added.

However, only a few vendors offer end-to-end trading systems, which can be hosted internally or run as a service.

For Vela, it was a matter of buying rather than building the components the vendor’s product portfolio lacked.

Before pulling out its checkbook, the company rebranded itself as Vela in 2016 so that it could retire any lingering confusion between SR Labs and Wombat products lines resulting from SR Labs’ purchase of Wombat in 2014.

The branding changes set up the runway for Vela to go into acquisition mode and helped connect the dots in creating a trading ecosystem, said Nayar.

“We have parts of that ecosystem like low-latency market data, market access capabilities, consolidated market data speed,” she said. “But we did not have some of the other things that our clients were asking of us, specifically around running direct-market access as a service, pre-trade risk, a fully functional trading screen.”

To create Nayar’s vision of an end-to-end multi-asset trading system, Vela announced its intention to purchase futures and options trading and risk platform provider OptionsCity on June 20 and direct-market-access and risk-analytics provider Object Trading just three weeks later.

Vela plans to take some time to digest and integrate its recent purchases before looking towards any further strategic investments.

“We probably have enough to get on with for the time being,” said Nayar. “There is work to do behind the scenes.”